Czech Republic Beer Market - 2003

Text:Vincent Lefére
The price of beer must increase, so says the general manager of Prague Breweries. The general manager of the countrys second largest brewery concern, Tony
Desmet of Prague Breweries, has been replaced by Vincent Lefere last year in November. In
turn, Desmet moved up within Interbrew, which owns Prague Breweries, to the position of
vice president. Lefere, a 52 year old lawyer, studied law at a university in Belgian
Lovani. However, he is not so drawn to justice and himself admits that he has always been
more interested in business. He got on board at Interbrew in 1990, becoming the general
manager of its Romanian branch some eight years later. Besides a wife and three sons,
Lefere has many hobbies, some of which include classical literature, tennis and
recreational running. EURO: When Interbrew took over Prague Breweries, your predecessor had to overcome a
crisis which the group had found itself in under the previous management of Bass. What are
your goals?LEFÉRE: After a complicated period, the situation has dramatically improved for
the better. We restructured the groups basic capital, which we first reduced so we
could later increase it by three billion CZK. Thanks to this, higher sales and a more
productive output, we managed to reduce our losses in 2001 by almost 80% and, after last
year, we should manage to get back into the black. Therefore, I see my goal, thanks also
to the good foundation laid for me by my predecessor, to gradually increase revenues,
increase our market share and inevitably our profits. EURO: Prague Breweries presently maintains about a fourteen percent market share.
What market share would you like to attain during your role here?LEFÉRE: During 2001 we managed to increase our sales of Staropramen by eleven
percent, where our other brands were doing well also. Thanks to higher sales, we increased
our share of the market by more than one percent. We want to continue to grow, but I do
not want to set a limit or figure to this growth. EURO: Beer breweries here argue that the price of beer on this market is too low.
Even so, breweries fear raising them dramatically. In December you announced a slight
increase in your prices. Do you see more room for price increases in the near future?LEFÉRE: Prices here are truly one of the lowest in Europe. I did not even see
such low prices in my previous position  in Rumania. From a long term point of view,
these prices are not maintainable, especially if we compare them to relatively high sales
at low profits. We are making substantial investments into our brands, for which reason it
is understandable that the price of our beers must increase, considering they are not even
keeping up with inflation. However, we do not want our customers to suffer any greater
shocks, for which reason we intend to carefully consider any price changes and apply them
gradually. Above all, we want to emphasise that any price increases will bring positive
benefit also to our customers. EURO: What benefit could people have from higher beer prices?LEFÉRE: A more varied selection, better care in their treatment, and
uninterrupted supervision on quality. What concerns the retail sector, we aim to make the
consumers purchase as easy as possible, which is why we are developing our category
management in order that it corresponds to the demands of those buying our products. To
explain this in simpler terms, we offer our products at favourable prices and with direct
sales support. As part of this strategy, we are cooperating with retailers to make their
beer sections as transparent as possible. We want to avoid a situation where the consumer
ends up buying something they dont really want. Even though we are only now
developing this strategy, we are already working on category management projects not only
with the main retail players on the market but also with gas station chains. EURO: Can you tell me what are retailers main demands, what concerns category
management? Hypermarkets probably have a different idea of categories then do gas
stations. LEFÉRE: Retail chains are usually more interested in a complete project of beer
category management, such as the evaluation of a market research study, data analysis, or
recommendations in strategic areas, such as product assortment, price policies, sales
support, or presentation of goods in the store. On the other hand, gas stations are more
interested in certain minor adjustments in the product offer or the presentation of our
beer. EURO: Very close cooperation in category management could be perceived as a certain
degree of bribery, in order to position certain brands in the first isle. LEFÉRE: It is certainly not like that at all. Category management is only one
aspect of what makes a brand strong. We believe that such strong brands will find
themselves in the first isle on their own. This is precisely why marketing support and
strengthening the awareness of Staropramen, Branik and all the other beers offered by our
brewery is so important to us. We do not want to support any sort of bribery of retail
chains nor pubs and do not want to practice anything of the sort. EURO: The Interbrew group likes to refer to itself as a world producer of local
beers and it seems that it has found success with such support of local beers when it
recently attained a higher output than did Heineken. LEFÉRE: The support of local beers is the core of our strategy. We do not want
the taste of our beers to be some international average. On the contrary, we do not aspire
to change the tastes of local consumers. As soon as we penetrate any market, we
immediately start working on building up a strong local brand. In some cases, such as with
Staropramen or Branik, the brands already have a strong domestic footing on the market, in
which case all we need to do is support it further. When it is not so strong, we must
build it up from the bottom. From my short experience in this country [less than two
months  editors note], I have been told that Staropramen and our other
brands sit well with consumers. I believe that Staropramen is one of the best beers which
Interbrew has within its portfolio. We must simply respect the fact that Czechs make the
best beer on the planet. EURO: When you took over Prague Breweries from the Bass group, in light of the
apparent long standing financial problems, did you consider Prague Breweries
flagship beer of Staropramen as a strong brand?LEFÉRE: Prague Breweries practically fell into our laps at a time when we were in
the process of buying its owner  Bass of England. Even so, we always considered
Staropramen as a strong brand but which had, unfortunately, lost some of its credit for a
few years prior to when we took it over. However, thanks to a massive campaign, we have
managed to bring the brand back to its previous fame. EURO: For Prague Breweries, Staropramen is the leader. This may be why last year it
was speculated that Interbrew was aiming to get rid of Branik LEFÉRE: We never intended anything of the sort and neither do we plan it. We
consider our present structure of local brands as optimal. EURO: It was also rumoured to say that Interbrew wanted to expand its brand
portfolio in the Czech Republic.LEFÉRE: We cannot exclude that possibility. After all, it is one of the ways we
can increase our market share. If such an opportunity were to present itself to us, it
would be a sin if we did not take advantage of it. However, we are not making preparations
for anything of the sort at the moment. EURO: With its more than three hundred thousand hectolitres annually, Prague
Breweries is the third largest Czech exporter of beer. Do you intend on supporting exports
further?LEFÉRE: Our export policies are focused primarily on Staropramen. A new piece of
information is that this beer is to become one of the six global premium beers in
Interbrews portfolio, together with Becks, Stella Artois, Hoegaarden, Leffe and Bass
Ale. Moving this beer into the premium beer category should support its position on the
main export markets of Germany, Slovakia, England, Sweden and Russia, and facilitate
Prague Breweries expansion on other markets. For example, we are making preparations
to start exporting Staropramen to Canada. EURO: Do you intend on marketing Czech beers to Belgians as well?LEFÉRE: No, not that. Belgium is in many ways very similar to the Czech Republic.
Consumers do not trust foreign beers and, as Czechs, are exceedingly pampered with good
beer. The most brands of any market in the world can be found in Belgium, and almost all
of them are of domestic origin, for which reason it is very difficult to introduce
anything else. EURO: Even though some are heard to say that the Staropramen advertising campaign
depicts Czechs, primarily men, as passive consumers, one cannot dispute the success of the
commercials. Do you plan on applying a similar campaign in other countries/? For example,
might not the beer training camps catch on also in Rumania?LEFÉRE: That is an interesting thought. We are trying to maximally apply the
synergetic effects which can come out of a large expansion of Interbrew. This is why it is
possible that some concepts which work in one country we will apply in another. But what
concerns the beer training camps, of whose success I was truly surprised, I am not certain
whether this concept can be applied elsewhere. And what concerns the pessimistic view that
our campaign is degrading the consumer to a mere beer drinker, I simply refer those people
to the success of the campaign. EURO: Czechs and Belgians are considered beer connoisseurs. Why do you think that
there exists a definite beer cult in these countries?LEFÉRE: Both nations love beer, although each of them in their own manner. The
typical Belgian beer drinker differs from their Czech counterpart. For example, the
specialty beers play a much more important role in Belgium than they do here. In some of
the larger Belgium cities, consumers can pick out from more than six hundred types of
beer, where Czech beer drinkers most often prefer the Pilsner type lager. This is one of
the reasons why we include Belgian specialty beers in some of our brand chain pubs, such
as the Potrefena Husa. EURO: The average Belgian drinks ninety litres of beer annually, where their Czech
counterpart around one hundred and sixty litres. How much does the Belgian director of
Prague Breweries drink annually?LEFÉRE: I fear that I might be a bit above the average Czech to this degree, as I
drink on average from one to three beers a day.

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Text:Five of the largest brewery concerns in the country have signed an agreement to
maintain an ethical code among responsible breweries. The rules, which primarily concern
advertisements and other methods of increasing sales, reflect similar ethical standards
used abroad and by the Czech Advertising Council. They go beyond domestic legislation, so
reported Jan Vesely, the chairman of the Association of Czech Brewers and Malt Houses.
Pilsner Prazdroj, Prague Breweries, Budweiser Budvar, Krusovice Breweries and Starobrno
have all signed up to the deal, breweries which together control about 75% of the Czech
beer brewing market. The initiative, which is based on volunteer principles where other
breweries can join on board, is put together under the wings of the association. A team
made up of one representative from each participating member is responsible for
supervising adherence to the agreement, so stated Vesely. As an example, the code
stipulates that no advertising can promote or present irresponsible or excessive drinking,
or show the results of excessive drinking. No advertisement can negatively nor ironically
portray abstinence or restraint in consumption. Furthermore, the rules state that an ad
must support a beers sales with the intention of reinforcing brand loyalty or to
switching from another brand, but never to promote greater consumption. In addition, it
must not portray the thought that the consumption of beer can lead to sexual success.
"We expect that this signing of the agreement is only the first step. For example,
this agreement can lead to certain informational or educational events aimed at the
professional or general public," explained Vesely, who says the main aim of this
agreement is to promote an ethical and self-regulating environment in the Czech beer
brewing industry. It is also supposed to support a cultivated and responsible, temperate
consumption of the most popular drink in the Czech Republic, he concluded.

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Text:
The new owner of American brewery Miller Brewing Co. is to replace its existing
general manager and president, John Bowlin, so reported Millers press spokesman at a
press meeting today. The brewery is the second largest brewery concern in the US and
Bowlin is supposed to step down at the end of this month. In place of him will be Norman
Adami, the executive board chairman and director of South African Breweries. In return,
his position in South African Breweries will be taken by Today van Kralingen, the highest
director of SABMillers division in the Czech Republic. Analysts are not surprised to
learn of the personnel changes at the helm of the American group, although they are not
certain how successful the company will be under Adami. Some analysts estimate that Adami
could help the companys distribution system. Bowlin has been at the helm of Miller
since April of 1999 and his departure follows a change in the companys ownership
last year in July, when the American group was sold by Philip Morris Cos. for an amount of
3.6 billion USD to South African Breweries PLC, which is based out of London. This deal
created the second largest brewery concern in the world, following Anheuser-Busch Cos. The
new company adopted the name SABMiller, which also controls the Czech number one brewery
concern of Pilsner Prazdroj. Millers market share continues to decline. According to
Beer Marketer's Insights, which monitors the beer market, Miller had a market share in the
US last year of 19%, down from its previous years share of 19.6%. On the other hand,
Anheuser-Buschs share increased last year to 48.9% from 48.5% the year before.
Revenues in the industry increased last year by 1 to 1.5%, this while Millers
revenues decreased by two to three percentage points, so reported AP.

Text:After working for three years as executive board chairman and general director of
Pilsner Prazdroj, Tony van Kralingen is once again returning back to South Africa. The 45
year old marketing and human resources expert will take over control of South
Africas division SABMiller - South African Breweries Ltd starting March first.
"The executive committee of SABMiller is now intensively looking for a new general
manager for Prazdroj and plans to let it be known who they have chosen by the beginning of
March," so reported Alexej Bechtin, press spokesman for Prazdroj. Kralingen is
already the second foreigner in the top management at Prazdroj leaving from the largest
Czech beer brewing concern over the past few weeks as, Garth Saunders, Prazdrojs
executive board vice-chairman and financial director, has returned to South Africa half
way through last November. "Gavin Brockett, who up until now worked in South Africa
as the general manager of ABI, concerned with the distribution of non-alcoholic beverages,
will step on as financial director of Prazdroj at the start of March," reported
Bechtin. In March Tony van Kralingen will step on as executive board chairman and general
director of SABMiller, as such taking the place of Norman Adami, who is to take over
management of American brewery concern Miller Brewing Company. Kralingen will also become
a member of the executive council for all of SABMiller. From half way through the 90s, the
present general manager of Prazdroj took part in new acquisitions by SAB on the world beer
market. His group in fact recommended the purchase of Pilsner Prazdroj, a takeover which
materialised in 1999. At that time, the concerns investments into Prazdroj
represented its largest acquisitions and also marked its entry onto the global beer
market, for which Pilsner Urquell was chosen as the entire groups flagship beer.
Bechtin says that Kralingens presence at Prazdroj contributed primarily to
stabilisation of ownership relations, and further rapid development and growth. "Our
share of the Czech beer market has increased by four percent to the present 48%,"
added Bechtin. The annual output of all three of Prazdrojs breweries increased by
almost three million to eight million hectolitres of beer, where the sale of Pilsner
Urquell abroad has also increased dramatically. The concerns profits increased two
fold. Prazdroj leads the Czech market and, with its exports to 50 countries around the
world, is the nations largest exporter of beer. The concern also controls the Saris
brewery, the second largest brewery concern on the Slovakian market. Prazdroj is the most
prominent concern in the Central and Eastern European beer brewing industry and is part of
global concern SABMiller plc, which is the second largest brewery concern in the world.

Text:The European commission concluded without results its investigations concerning its
suspicions of cartel agreements made between Danish brewery Carlsberg and Dutch brewery
group Heineken. The executive arm of the EU today announced that it had not found evidence
proving that an agreement had been made between the two companies dating back as far as
1995. The commission blamed both brewery concerns of coming to an agreement between each
other and stipulating that they will not try to penetrate each others markets, an
agreement which was allegedly to apply between the years of 1993 and 1996. But the
commission could not find evidence to such an agreement after May of 1995. EU rules give
the commission power to impose fines on companies found guilty of signing cartel
agreements and which they were proven to have fulfilled to the latest five years prior to
commencement of the investigations. In this case, the investigations had started in the
year 2000. Both of the companies sent statements to the commission denying any agreements
made concerning division of the market or any other form of cooperation. In August, the
commission stormed the companies headquarters, but did not manage to find any
evidence of such agreements following 1995.

Text:Starting March, Platan Breweries of Protivin will brew Klasik beer for
Pilsner Prazdroj. The agreement between the breweries, which anticipates an annual
production of around 100,000 hl. of beer, has already been approved by the Competition
Office. Klasik is one of the lower priced beers in Prazdrojs portfolio and is
earmarked for the retail sector. Sales of the beer, which has up until now been brewed in
the Prazdroj, Velke Popovice and Radegast breweries, continually increases. Stanislav
Fridrich, Prazdrojs technical production manager, stated that the so-called contract
brewing method is common in the world and enables breweries to effectively distribute
their brewing capacity. These practices are also used in many countries in which
Prazdrojs parent company of SABMiller operates. Under the agreement, Pilsner
Prazdroj will provide Platan with the necessary production documentation and will monitor
the quality of raw materials and adherence to set production procedures in order to
maintain the beers quality and all its other parameters. "After careful
examination we found Platan Breweries to be a reliable partner for this purpose,"
stated Fridrich. Platan last year produced 135,000 hl. of beer. "Contracted output
for Prazdroj enables us to make effective use of our existing capacity and to implement
many other planned measures for the development of our brewery as a prominent regional
brewery," commented Jaroslav Kovaricek, the Protivin brewerys general manager.
Kovaricek commented that this new deal should not impose any limitations on the
companys current assortment. "Our development strategy continues to focus on an
independent business policy, at least what concerns our own brands," concluded
Kovaricek. The contract covers only the production and storage of Klasik beer in the
provided packaging, not any marketing, sales or distribution work.